One of the major aims of the Patient Protection and Affordable Health Care Act (the Act) is to expand the access to health care of all Americans, particularly lower-income Americans. As a step down that road, the Act expanded the 340B discount drug purchase plan (the Plan) by making more types of facilities eligible for participation in the Plan. Sections 7101-7103 of the Act. Participation in the Plan allows facilities to purchase drugs at prices below those at which the same drugs would typically be available to public or private payors in the market.

Eligibility Expansion

Prior to the Act, only certain types of facilities that were paid on a prospective payment system (PPS) basis were eligible to participate in the Plan. Such facilities were seen as providing a safety net of care to low-income patient populations and included, among others: public hospitals and private not-for-profit hospitals, which had a contract with a state or local government to provide health care services to low income individuals, that had a disproportionate share hospital (DSH) percentage greater than 11.75 percent or federally qualified health centers.

The Act expands eligibility to the Plan to free-standing cancer hospitals and children’s hospitals, Critical Access Hospitals (CAHs), Sole Community Hospitals (SCHs) and Rural Referral Centers (RRCs). While the existing requirements for Plan participation apply to newly-eligible entities, the Act made specific changes or modifications to the following requirements for enrollment that apply to newly-eligible entities:

  • Newly-eligible entities must exceed the threshold DSH percentages for the specific type of facility (11.75 percent for children’s hospitals and cancer centers; 8 percent for SCHs and RRCs; CAHs do not have a DSH percentage threshold); and
  • Children’s hospitals and cancer centers must not obtain drugs covered by the Plan through a group purchasing organization (GPO). CAHs, SCHs, and RRCs may continue to purchase Plan-covered drugs through a GPO.

During the drafting and negotiation stages of the Act, there was discussion of extending the Plan, which has historically only applied to outpatient drugs, to include inpatient drugs. However, in the enacted legislation the Plan continues to only apply to outpatient drugs for all types of eligible facilities.

Effective Dates and Regulations

The Act made the expansions in eligibility effective on January 1, 2010. Despite this retroactive effective date, however, newly eligible entities cannot apply for enrollment in the Plan until the Office of Pharmacy Affairs (OPA) releases regulatory guidance detailing enrollment requirements and procedures and revises the current enrollment forms. Until these regulations are issued, it is unclear whether drug purchases made after January 1, 2010, by a newly eligible and enrolled entity will receive a retroactive discount, i.e., will enrollment be retroactive to January 1, 2010. No date has been set yet for the release of regulations by the OPA.

Enforcement and Verification Changes

The Act authorizes the Secretary to compare actual drug prices being charged under the Plan to the price ceilings to which drug manufacturers must conform under the Plan. Compliance will be evaluated both at the aggregate market level and through spot checks of individual transactions. The Secretary also will be able to refund manufacturer overcharges and otherwise correct pricing discrepancies and abuses under the Plan. Violations of the pricing elements of the Plan will be punishable by new civil monetary penalties of up to $5,000 per instance of overcharging. The Act also provides for the Secretary to more strictly scrutinize drug purchasing and selling organizations and their conduct, particularly their price-reporting mechanisms and safeguards against obtaining double discounts through both the Plan and state Medicaid programs. While the Act provides the broad strokes of enforcement and verification, the details will not be fully known until the Secretary issues regulations.

Implications for Provider Entities

The number of provider entities eligible for the benefits of the Plan was significantly increased by the Act. However, the expanded eligibility brings new data and operational challenges for many of these providers. Newly eligible entities first should conduct an analysis to determine whether they qualify for the applicable DSH threshold and, if so, whether enrolling in the Plan offers them significant financial benefit. The benefits are likely to be greater for facilities that provide drug-intensive treatments or utilize high-cost but high-discount drugs, e.g., some cancer drugs. Each facility’s enrollment and savings calculus will be different. Determining whether a particular facility qualifies for Plan enrollment may be particularly challenging for those entities that previously have not had to compute or monitor DSH percentage. Even if enrollment doesn’t make current sense, such facilities should begin tracking this percentage to evaluate future enrollment.

Even though the regulations detailing the process and detailed requirements for eligibility and enrollment have not been issued, entities that are considering enrollment in the Plan should begin taking steps now so they are prepared to apply when the appropriate regulations and forms are issued. Such steps may require changes to internal reporting systems or processes, particularly with regard to monitoring which drugs receive state Medicaid discounts and which would be eligible for Plan discounts so as to avoid overlapping discounts. Some potential enrollees (children’s hospitals and cancer centers) may need to unwind or redefine GPO agreements or policies in order to meet Plan requirements. Facilities that want to use Plan-discounted drugs in outpatient clinics should move to qualify those clinics as provider-based locations of the facility. Because the Plan only applies to outpatient drugs, facilities will need to track inpatient and outpatient drug supplies and use separately. This can often be a significant system and administrative undertaking. Entities considering enrollment in the Plan should watch for additional regulations or guidance from HHS, begin discussing necessary infrastructure preparations, and contact legal counsel with questions regarding the new eligibility or implementation steps.